The world’s top finance ministers and central-bank chiefs meeting in Dresden this week are already struggling to stick to an agenda set by their German hosts that doesn’t mention Greece.
In a sign of deepening global concern over the country’s stumbling bailout talks, U.S. Treasury Secretary Jacob L. Lew spoke with Greek Prime Minister Alexis Tsipras on Wednesday for the second time in less than a week and told a London audience that “everyone has to double down” on reaching an accord. European Commission Vice President Valdis Dombrovskis denied a Greek government statement that a deal is close.
The Group of Seven meeting starting on Wednesday will officially focus on big-picture themes of economic growth, tax evasion and strengthening the global financial architecture. Yet the most pressing matter for many of the policy makers attending is whether Greece can stay in the euro, and whether the world can handle the consequences if it can’t.
“There are no major pressing issues related to currencies or trade to be discussed,” Christian Schulz, an economist at Berenberg Bank in London, said in an interview. “The worry on everyone’s mind will of course be Greece, and the message for Greece is going to be that it has to do what it takes to save its economy.”
While the G-7 doesn’t have a mandate to decide how to deal with Greece, it brings together officials from the euro area’s three biggest economies, as well as the European Central Bank, the International Monetary Fund and the European Union -- the institutions backing the 240 billion-euro ($262 billion) aid package that expires next month.
Time is running out for the Mediterranean country to agree with its creditors over economic reforms needed to unlock funds before payments on IMF loans come due next month.
A Greek official said the country will start drafting an accord at a meeting on Wednesday, and that a deal including changes to the pension system and a long-term solution on debt is close. Dombrovskis responded by telling reporters in Brussels that “we are still not there.”
Earlier the same day, Lew told Tsipras in a phone call that failure to agree on a path forward would create immediate hardship for Greece and broad uncertainties for Europe and the global economy, the Treasury said in an e-mailed statement. He urged all parties to find common ground and reach an agreement quickly, reflecting similar comments in a call with Tsipras on Friday.
“Brinksmanship is a dangerous thing when it only takes one accident,” Lew said Wednesday at the London School of Economics while en route to the G-7 meeting. “So everyone has to double down and treat the next deadline as the last deadline and get this resolved. The risk of going from deadline to deadline only increases the risks of accidents.”
The ECB’s Governing Council left the level of emergency cash available to Greek banks unchanged at 80.2 billion euros. The money is to replace deposits that are being withdrawn amid uncertainty over Greece’s future in the currency bloc.
In Dresden, at a former palace of Saxon princes and kings, German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann will host their counterparts from France, Italy, Japan, the U.K., Canada, and the U.S. IMF Managing Director Christine Lagarde, ECB President Mario Draghi and Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of his euro-area colleagues, are all scheduled to attend.
As together the seven nations account for almost half of world economic output, Germany wants keep the Dresden meeting to global themes. That includes Schaeuble’s push for debt reduction and fiscal restraint that Germany is promoting for the euro area and beyond.
Germany intends to use the G-7 event to push for countries to close gaps in financial regulation by implementing globally agreed rules. It will also argue in favor of international controls to prevent large corporations from shifting their profits across borders to minimize tax, and the sharing of tax information to combat evasion.
For all the international cooperation, Schaeuble said this month that he still expects to be criticized at the meeting for his country’s austerity-focused approach to the euro area’s woes. The U.S. has previously called for a quicker fix to Greece’s problems, hinting that it views Germany’s insistence that Greece fulfill bailout terms as a risk in itself.
The challenge for European officials and the IMF is to “show enough flexibility so if the Greeks are prepared to take the kind of steps they need to take, they find a pathway to resolving this without there being an unnecessary crisis,” Lew said in London on Wednesday. “It’s time for everyone to park the rhetoric on the side and look for that sensible place where accommodation can be found.”
While differing over strategy, G-7 officials may seek to reassure each other that they’re equipped to manage the fallout should agreement not be reached on Greece. Bank of France Governor Christian Noyer said on Tuesday that he doesn’t see “any particular” risk for banks and insurers related to a departure of Greece from the euro zone.
Compared to previous flare-ups in the sovereign debt crisis, the euro area has more tools now to deal immediately with turmoil, such as the ECB’s unlimited bond-buying backstop, known as OMT, said Lefteris Farmakis, an analyst at Nomura International Plc in London.
“A more relaxed attitude toward the risk of contagion is normal,” he said. “But there might be an impact on confidence in the future, with people wondering about the possibility of an exit every time a problem arises in one of the periphery countries.”